Reliance Capital Lenders to receive equal funds as CoC approves Hinduja resolution plan

Dissenting lenders to be treated equally in fund distribution, mitigating intercreditor disputes

In a significant development, the lenders of Reliance Capital (RCap) have unanimously approved a plan to distribute funds from the Hinduja resolution plan equally, regardless of their stance during the voting process next month. This approach aims to avoid litigation and provide fair treatment to all lenders, departing from previous practices where dissenting lenders received payments based on liquidation value. RCap, formerly owned by Anil Ambani, underwent debt resolution in November 2021 after defaulting on loans totaling Rs 24,000 crore.

The decision marks a departure from traditional methods, addressing concerns of intercreditor disputes and fostering a smoother resolution process. Previous bankruptcies often witnessed litigation arising from differential treatment of lenders. By basing the fund distribution on admitted claims, the new plan ensures an equitable approach.

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IndusInd International Holdings (IIHL), a Hinduja Group company, submitted a single resolution plan worth approximately Rs 9,650 crore during the second round of auction held last month. While the Hinduja offer falls short of the liquidation value of Rs 13,000 crore, lenders will have an opportunity to vote on this proposal in June.

The Supreme Court, however, will have the final say on the fate of the Hinduja offer in August. The court is currently examining a petition filed by Torrent Group (Torrent), which objects to the second auction conducted by banks. Torrent emerged as the highest bidder in the initial auction with an offer of Rs 8,640 crore in December last year.

The decision to distribute funds equally among lenders, irrespective of their stance on the resolution plan, is expected to reduce intercreditor conflicts and expedite the resolution process. Banking sources suggest that the entire process, including the submission of the resolution plan to the National Company Law Tribunal, may be completed by mid-July.

Torrent Group, in a letter to the committee of creditors (CoC), reaffirmed its position against participating in the second auction. Torrent emphasized the alleged “illegality” of the second auction, stating that it violated current bankruptcy laws. Concerns were raised regarding the arbitrariness and lack of clarity in the auction process, as the CoC chose not to freeze resolution plans (except for the financial proposal) prior to the extended challenge mechanism.

With the CoC’s decision to distribute funds equally and the resolution plan’s progress, it is anticipated that the resolution of Reliance Capital’s debt issues will advance in a more streamlined manner. The involvement of the Supreme Court will bring clarity to the proceedings, ensuring a fair and lawful resolution for all parties involved.